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Analyst Interview Excerpt
OUTLOOK FOR POSTSECONDARY EDUCATION COMPANIES – ARIEL SOKOL – WEDBUSH MORGAN SECURITIES INC.


Full article published: 09/07/2009


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TWST: What's the key issue in the education space at this point?
Mr. Sokol: There are really two different issues. The first issue relates to the regulatory/legislative overhang on the sector. Investors are concerned with the lack of transparency regarding potential changes undertaken by the Obama Administration and what the President would like to do regarding the sector. The other concern relates to the improving economy, that presumably we're at the beginning of the end of the recession, that there will be deceleration in the growth rate of enrollments, and that inevitably this or next year we're going to see increasing competition for a reduced number of students desiring to pursue degrees.

TWST: Let's start on the regulatory side. What's the uncertainty - just that Obama hasn't clarified what he wants to do?
Mr. Sokol: President Obama is clearly a transformational figure. If you take a look at a number of different industries, he has little concern in involving the federal government in the economy as structural changes occur. So just from a cultural perspective, I think people are just very uneasy about any sector where there is this level of government participation. Then you have President Obama proposing the eradication of the FFELP program and the ascendancy of the Direct Loan Program as a means to finance student loans. So the fear is that, back in the day, Bush had his crony capitalism and his cohorts who some perceived as favoring market funded institutions during the 2000s, and now that it's Obama time, there might be a review of certain practices or there might be potential changes introduced in Congress that would potentially harm these market funded institutions. This is not to say that we think this is going to happen, rather this is the fear of what potentially could happen and that's enough to have this overhang over the stocks. There are a lot of rumors and speculation as to action items he could potentially introduce.

 

Tickers included in this excerpt: APOL, CPLA, STRA

 

For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.